Liberalised Remittance Scheme (LRS): USD 2,50,000 Limit, TCS Rules & FEMA Compliance Guide [2026]

India's Liberalised Remittance Scheme (LRS) allows every resident individual — including minors — to send up to USD 250,000 abroad per financial year for a wide range of purposes, from education and travel to investing in foreign stocks and buying overseas property. But the rules around Tax Collected at Source (TCS) have changed significantly in 2025, and many people are paying far more tax than necessary due to a simple misunderstanding. Here is the complete guide.

What is LRS and Who Can Use It?

The Liberalised Remittance Scheme was introduced by the Reserve Bank of India in 2004 to liberalise India's historically restrictive foreign exchange regime. Under LRS, any resident individual (Indian citizen residing in India) can freely remit foreign exchange for current account and capital account transactions — up to a combined limit of USD 250,000 per financial year, without needing specific RBI approval.

LRS applies to resident individuals only — it does not apply to companies, partnership firms, HUFs (as entities), or trusts. However, individual partners or trustees can separately use their own LRS limits. NRIs cannot use LRS — they have separate FEMA provisions.

The USD 250,000 Annual Limit — What It Includes

The USD 250,000 annual limit is an aggregate limit for all remittances across all purposes in a financial year (April to March). Critically, the following are included within the LRS limit:

• Foreign travel forex (cash + prepaid forex cards)
• International credit card spends (from April 2023; international credit card spends are now counted under LRS)
• Education remittances
• Foreign stock and ETF investments
• Gift and donation remittances abroad
• Overseas property purchase
• Maintenance of close relatives abroad

What Can You Remit Under LRS?

TCS on LRS: The 2025 Changes You Must Know

Tax Collected at Source (TCS) on LRS remittances has been through significant changes over 2023–2025. Here is where things stand as of Budget 2025:

Practical Example

You remit ₹15 lakh abroad in a year to invest in US stocks. TCS applies on ₹5 lakh (the amount above ₹10 lakh) at 20% = ₹1 lakh TCS. Your bank collects this at the time of remittance and deposits it with the government under your PAN. You will see this in Form 26AS and your Annual Information Statement (AIS).

How to Claim Back TCS — It Is Not a Permanent Tax

This is the most misunderstood aspect of LRS. TCS is not an additional tax — it is an advance tax credit. The amount collected as TCS reduces your final income tax liability for that financial year. If your total income tax due (after all deductions) is ₹3 lakh and TCS collected was ₹1 lakh, your net tax payable is only ₹2 lakh.

If TCS collected exceeds your total tax liability (which happens for individuals with income below the tax-free threshold), the excess TCS is fully refundable when you file your ITR. The refund is typically processed within 3–6 months of filing. This means your money is locked with the government temporarily — which is why high LRS remitters should ensure they have adequate liquidity before making large remittances near the financial year end.

LRS for Education Abroad — Special Rules

Education remittances get the most favourable TCS treatment under LRS:

• Education loan funded: Zero TCS — completely exempt from TCS regardless of amount. Get a letter from your bank confirming the remittance is from an education loan account.
• Own funds: 5% TCS on amounts above ₹10 lakh per year (Budget 2025 threshold).
• What's included: University tuition, hostel fees, living expenses, books, insurance paid to foreign institutions — all qualify as education remittances.
• Purpose code: Use purpose code S0305 (Studies abroad) when making the bank transfer — using the wrong purpose code (e.g. "personal" or "maintenance") may result in incorrect TCS being applied.

Investing in Foreign Stocks Under LRS: A Practical Guide

Investing in international stocks (US, UK, Singapore, etc.) through LRS has grown dramatically in popularity. Platforms like Vested, INDmoney, and domestic broker offerings allow direct LRS-based investment in foreign markets. Key points:

• Tax treatment: Gains on foreign stocks are taxed in India as capital gains — long-term (held >24 months) at 12.5% and short-term at applicable slab rate for equity in unlisted foreign companies. For listed foreign stocks, gains are taxed at applicable slab rates (not 12.5%).
• Dividends: Foreign dividends received are fully taxable as income under the head "Income from Other Sources" at applicable slab rates. Foreign Tax Credit (FTC) under Section 90/91 can be claimed for taxes paid abroad.
• FBAR / disclosure: If your total foreign financial assets exceed ₹20 lakh at any point, you must disclose them in your income tax return (Schedule FA — Foreign Assets).
• TCS impact: Remember 20% TCS applies on stock investment remittances above ₹10 lakh — plan liquidity accordingly.

The Most Common LRS Mistakes

1. Wrong purpose code on the bank transfer — this can trigger wrong TCS rates and create documentation problems later.
2. Not tracking the annual limit — people forget international credit card spends count towards the ₹2,55,000 (approx.) annual limit and exceed it unknowingly.
3. Not claiming TCS refund — many people don't file ITR or file without claiming the TCS credit, permanently losing the money.
4. Multiple remittances across banks without tracking the cumulative total — each bank reports separately to RBI; violations are detected.
5. Sending money to a company instead of an individual — LRS applies to remittances to individuals (family, your own foreign account). Remittances to companies are governed by ODI/FDI rules.
6. Not declaring foreign assets in ITR Schedule FA — mandatory once foreign assets exceed the threshold.

Documents Required for LRS Remittances

• Form A2 — application form to AD bank; must specify purpose code
• PAN card (mandatory for all LRS remittances)
• Purpose-specific documents: University admission letter (education), doctor's recommendation (medical), property purchase agreement (real estate), brokerage account details (investment)
• Self-declaration that remittance is within the annual limit across all banks
• For education loans: Education loan sanction letter from bank
• Relationship proof for maintenance remittances (passport, birth certificate, marriage certificate)